Solid bottom line is driving SAP SE (NYSE: SAP) stock

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SAP SE (NYSE: SAP) stock rose over 2% on 21st October, 2019 (as of 12:02 pm GMT-4; Source: Google finance) after the company reported 28% rise in the net profit in the third quarter to 1.25 billion euros ($1.40 billion) from EUR971 million a year earlier. Operating cash flow in the third quarter was significantly better than in the first half of 2019 and contributed €638 million (up 28% year-over-year) to the nine-month operating cash flow. But, Operating cash flow for the first nine months fell 5% to €3.32 billion year-over-year. The decline in operating cash flow was mainly due to higher payouts related to share-based compensation (€205 million), restructuring payouts (€239 million) and higher tax cash outflows (€490 million) compared to the first nine months of 2018. SAP’s free cash flow was flat year-over-year at €2.33 billion. At the end of the third quarter, the company’s net liquidity was -€8.28 billion.

The company had reported the adjusted revenue growth of 13 percent to €6.8 billion in the third quarter of FY 19.  New cloud bookings rose 39%, primarily on the back of a new 3-year partnership with Microsoft. The revenue recognition from this deal starts in the fourth quarter of 2019. SAP’s revenue from cloud subscriptions and support rose by 37% to EUR1.79 billion. Software licenses revenue was down 1% year over year to €932 million and down 4% (non-IFRS at constant currencies). New cloud and software order entry rose up 20% (15% at constant currencies) year over year in the third quarter.

Meanwhile, SAP had already reported some preliminary figures for the third quarter earlier in the month, when it announced that Bill McDermott, then chief executive, would step down. Executive board members Jennifer Morgan and Christian Klein were named co-CEOs at the time.

The company reiterates its outlook on FY19 and expects non-IFRS cloud revenue to be in the range of €6.7 − €7.0 billion at constant currencies, up 33% – 39%. The Non-IFRS operating profit for FY19 is expected to be €7.85 – €8.05 billion at constant currencies, up 9.5% – 12.5%. The company expects the total revenue to increase strongly in the full year 2019 at a rate lower than operating profit.

For fiscal 2020, the company expects non-IFRS cloud revenue to be in the range of €8.6 − €9.1 billion, non-IFRS total revenue is expected to be in the range of €28.6 − €29.2 billion and non-IFRS operating profit is expected to be in the range of €8.8 – €9.1 billion

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